Prime Lending – Market Update for week of July 16, 2012

>> Market Update week of July 16, 2012

QUOTE OF THE WEEK… “I do not think there is any other quality so essential to success of any kind as the quality of perseverance.” –John D. Rockefeller, American industrialist and philanthropist

INFO THAT HITS US WHERE WE LIVE… Everyone working in the housing market certainly has shown perseverance and it seems to be paying off. While the overall economy slows, there are signs of the start of a housing recovery. Bloomberg reports all major home price indexes registered modest national increases. Almost 10% more existing homes were sold in May than a year earlier. The inventory of existing homes has dropped close to a normal level of six months, key to sustaining spring home price gains.Housing starts were up 26% in May over the prior yearand the inventory of new homes is back at 2005 levels.

A new survey of forecasters by the Wall Street Journal found “44 believe the housing market has reached its bottom; only three don’t.” Housing is still far from healthy, but these indications of an upturn are welcome amidst the distressing lack of jobs. Economist Chip Case of Case-Shiller said, “A little tail wind is a lot better than a headwind.” Fannie Mae’s latest survey found 73% of Americans think now is a good time to buy a home and 35% expect prices to go up in the next 12 months.

BUSINESS TIP OF THE WEEK… If you aren’t happy with how things are going, the only way to fix the situation is to do something differently. Think of an action to take — then take it!

>> Review of Last Week

LUCKY FRIDAY THE 13TH… Wall Street investors are anything but superstitious, as they chose last Friday, July 13, to pile big money back into riskier equities, rallying stocks to their best session of the month and halting a six-day losing streak for the Dow and S&P 500 and a five-day downturn for the Nasdaq. Robust Q2 U.S. bank earnings drove the big gains, but because of those earlier down sessions, Friday’s rally only brought the Dow and the S&P 500 back to the prior week’s levels and left the Nasdaq down for the week.

China disappointed with 7.6% Q2 GDP growth, its lowest in three years. But investors took this as a positive, because it increases the likelihood the Chinese will apply more stimulus to boost their economy. Over here, FOMC Minutes from the last Fed meeting suggested “further policy stimulus likely would be necessary to promote satisfactory growth,” but no commitments were made. PPI inflation showed wholesale prices up higher than expected, while University of Michigan Consumer Sentiment came in lower.

For the week, the Dow ended virtually flat, up less than 5 points, at 12777; the S&P 500 squeaked up 2 points, to 1357; but the Nasdaq was off 1.0%, to 2908.

As stocks tracked downward the first four days of the week, bonds advanced, but the gains were trimmed as investors sold off Friday to join the 200-point rally in stocks. Nevertheless, the FNMA 3.5% bond we watch ended the week down just .03, at $105.22. National average mortgage rates reached all-time lows for several types of mortgages in Freddie Mac’s weekly survey. The Mortgage Bankers Association survey showed demand for purchase loans was up 3% for the week ending July 6, but down 3% from a year ago.

DID YOU KNOW?… This week’s Philadelphia Federal Index is constructed from a survey of manufacturers in Pennsylvania, New Jersey and Delaware, the Third Federal Reserve District. Above 0 indicates growth, below 0 signals contraction.

>> This Week’s Forecast

NEW HOME STARTS, EXISTING HOME SALES, STORE SALES, INFLATION… Plenty to chew on this week, featuring reads on the June housing market, with Housing Starts on Tuesday followed by Existing Home Sales Thursday, both expected up a bit, although Building Permits, which look further out, slightly down. The week begins with June Retail Sales, forecast up after a down month, but the gain could be paltry when they take out auto sales.

With the Fed contemplating more money printing (“quantitative easing”), inflation will be closely watched. It’s predicted to remain within Fed guidelines when we get the Consumer Price Index (CPI) and Core CPI for June on Tuesday.

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months… With the Fed thinking about more “quantitative easing” to stimulate the economy, the experts expect the Funds Rate to remain unchanged. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

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